Morgan Stanley expects Fed to hold rates through 2026, cut in early 2027

Investing.com -- Morgan Stanley forecasts the Federal Reserve will maintain current interest rates through the remainder of 2026, with two rate cuts anticipated in March and June 2027, according to a research note released this week.

The investment bank previously expected cuts to begin in January and March 2027.

The firm's baseline scenario for rate cuts is based on expectations that core inflation will slow as tariff pass-through effects diminish. Data from this week support this outlook, showing tariff pressures moderating while oil market spillovers remain limited in scope.

Morgan Stanley projects solid GDP growth of 2.3% on a fourth quarter over fourth quarter basis for 2026, despite a temporary slowdown in consumer spending.

April retail sales figures showed weakness in real terms, though upward revisions to February and March data suggest potential upside risk to consumption patterns. The bank noted that next week's quarterly services survey could provide additional clarity on consumer trends.

You May Also Be Interested In

• Morgan Stanley Starts OGE Energy (OGE) at Equalweight
• agilon health (AGL) Reiterated at Market Perform by Citizens Ahead of Annual Forum
• Goldman Sachs Assumes Zeta Global Holdings Corp (ZETA) at Neutral